Clearon AI

Tag: Litigation / Enforcement

  • Florida v. OpenAI Turns Chatbot Safety Into a State Consumer-Protection Case

    Florida v. OpenAI Turns Chatbot Safety Into a State Consumer-Protection Case

    Florida's lawsuit against OpenAI and Sam Altman is a state attorney general trying to turn chatbot safety into a consumer-protection, child-data, product-liability, and public-nuisance case.

    The complaint is only allegations. OpenAI and Altman have not been found liable. But the filing is still important because it shows how state enforcers may try to use existing legal tools against AI products without waiting for a comprehensive AI statute.

    The theory is direct: if a company markets a consumer chatbot as safe, reliable, useful for minors, or emotionally responsive, then product design, warnings, age controls, data collection, and safety testing may become consumer-protection issues.

    What Florida Filed

    The Florida Attorney General announced a civil action against several OpenAI entities and Sam Altman in Florida state court. The release describes it as a first-in-the-nation state-led lawsuit against OpenAI and its CEO.

    The state alleges that OpenAI knowingly released and aggressively marketed ChatGPT to the public, including children, while concealing serious risks and downplaying the danger of the product.

    The complaint seeks damages, civil penalties, injunctive relief, and abatement of an alleged public nuisance. It also says the state is pursuing the civil action separately from an ongoing Office of Statewide Prosecution criminal investigation relating to chat logs reviewed after the Florida State University shooting.

    That distinction matters. The civil lawsuit is not a criminal charge. It is also not a court finding that ChatGPT caused any specific harm. It is an enforcement complaint that still has to survive litigation.

    The Claims Are Broader Than Deception

    The complaint starts with Florida's Deceptive and Unfair Trade Practices Act, but it does not stop there.

    Florida pleads several FDUTPA theories. It alleges unfair practices, unconscionable practices, deceptive practices, and a FDUTPA theory tied to alleged violations of COPPA and its implementing regulations.

    The complaint also pleads negligence, gross negligence, strict liability for design defect, strict liability for failure to warn, fraudulent misrepresentation, and public nuisance.

    That mix is the real story. Florida is not only saying "the marketing was misleading." It is saying the chatbot's design, deployment, safeguards, age access, warnings, and data practices belong inside the enforcement case.

    For AI companies, that is the move to watch. State AGs do not need an AI-specific statute if they can plead old claims around new product behavior.

    The Minor-Data Theory

    One of the most concrete parts of the complaint is the child-data theory.

    Florida alleges that OpenAI has actual knowledge that children under 13 use ChatGPT, that users can input false dates of birth, and that OpenAI collects personal data through user conversations. The complaint says OpenAI fails to provide adequate notice to parents and fails to obtain verifiable parental consent before collecting or using children's personal information.

    Florida frames that as a FDUTPA issue by pointing to COPPA. The complaint says the state is not bringing a direct COPPA enforcement claim. Instead, it alleges that conduct violating COPPA and its rules can serve as an unfair practice under Florida law.

    That is a practical warning for consumer AI products. Even when the immediate lawsuit is brought under a state unfair-practices statute, federal child-privacy standards may still shape what the state calls unfair.

    The risk is especially sharp for products that:

    • are available to minors;
    • collect conversational, audio, image, location, health, or other personal data;
    • use memory or personalization features;
    • do not require robust age assurance;
    • depend on voluntary parental linking rather than default parental oversight; or
    • are marketed as helpful, supportive, educational, or safe for young users.

    The Safety-Representation Theory

    Florida also attacks safety messaging.

    The complaint alleges that OpenAI represented safety as part of its mission and made statements suggesting ChatGPT helps keep teens safe by default. Florida says those statements were misleading because, in its view, ChatGPT can produce dangerous responses, encourage unhealthy use, and create risks for minors and vulnerable users.

    This is a familiar consumer-protection structure applied to an AI product. A company does not need to promise perfection to create legal exposure. If it makes safety a selling point, regulators may ask whether the product design, warnings, testing, and deployment record match the claim.

    That is why AI companies should treat safety language like a substantiation problem. Claims such as "safe," "trusted," "reliable," "age appropriate," "guardrailed," "supervised," or "keeps teens safe" should be tied to evidence, limits, and current product behavior.

    The more sensitive the use case, the more careful the claim needs to be.

    The Product-Liability Move

    The complaint also tries to treat ChatGPT as a product for purposes of strict product liability.

    Florida alleges design defect and failure to warn. It says ordinary consumers would not expect a generative AI chatbot to proactively provide suggestions about self-harm or violence, or to contribute to cognitive decline or behavioral addiction in teenagers. It also alleges that risks could have been reduced by reasonable alternative designs and better safety testing.

    Those are allegations, and they raise hard questions that courts will have to confront. Is a generative AI service a product for strict-liability purposes? What counts as a design defect in a probabilistic model? What warnings are adequate for a general-purpose chatbot? How should courts treat intervening user conduct, misuse, and causation?

    Those questions are unsettled. But the fact that a state AG is pleading them matters.

    The next wave of AI litigation will not be limited to privacy claims or deceptive marketing. Plaintiffs and regulators will test whether product-liability doctrines can reach model behavior, release decisions, safety tradeoffs, and warning design.

    The Public-Nuisance Theory

    Florida's public-nuisance claim is also worth watching.

    The complaint alleges that the design and function of ChatGPT, including alleged encouragement of self-harm, violence, eating disorders, AI addiction, cognitive decline, and other harms, created a public nuisance affecting health and safety in Florida.

    Public nuisance has become a common tool in large public-harm litigation, but it is also heavily contested. Courts have not uniformly accepted efforts to use nuisance law for products or technology platforms. OpenAI will almost certainly challenge the theory.

    Even so, the claim signals how state enforcers may frame AI harm: not only as individual injury, but as a public-health and public-safety problem.

    That framing fits the broader state trend around companion chatbots, minors, crisis-intervention protocols, and recurring AI disclosures.

    For a closer look at that related trend, see Clearon's analysis of AI companion safety as an emerging compliance category.

    Why This Is Different From A Private Product Case

    The lawsuit matters partly because of who filed it.

    A private plaintiff usually has to prove individual injury, causation, damages, and standing. A state attorney general can frame the case around public enforcement, civil penalties, injunctive relief, public interest, and statewide consumer harm.

    That changes the litigation posture. It also changes the remedy discussion.

    Florida is asking for orders that would stop alleged misrepresentations, restrict collection and processing of data from children under 13 without notice and verifiable parental consent, require warnings about risk, and impose monetary relief. The complaint also seeks civil penalties up to $10,000 per FDUTPA violation and other damages or equitable relief.

    Whether Florida can obtain those remedies is a merits question. But the requested relief shows what state enforcers may want from consumer AI companies: not just money, but changes to product design, data handling, warnings, and minor-safety defaults.

    What AI Companies Should Do Now

    The safest response is not to treat this as a one-off Florida fight.

    Consumer AI companies should review:

    • safety claims in marketing, help pages, launch posts, investor materials, and teen/minor-facing materials;
    • age-gating, age-estimation, and minor-account flows;
    • parental notice, consent, and oversight features;
    • memory, personalization, and conversational-data retention practices;
    • chatbot responses involving self-harm, violence, eating disorders, mental health, drugs, weapons, legal advice, medical advice, and financial advice;
    • release-readiness records for major model updates;
    • incident escalation and red-team documentation;
    • warnings and user-facing disclosures for risky uses; and
    • how crisis-intervention protocols work in practice.

    This does not mean every chatbot is illegal or every safety failure is an unfair practice. It does mean that consumer AI products should be able to explain what they knew, what they tested, what they warned, what they blocked, and how they treated minors.

    That record will matter if an AG, plaintiff, regulator, or court asks whether the product was marketed and deployed responsibly.

    Bottom Line

    Florida v. OpenAI is early-stage litigation, not a judgment.

    It is still a concrete sign that state AGs are beginning to treat chatbot safety as ordinary consumer protection, not as a futuristic AI policy question.

    For companies building consumer-facing AI, the lesson is simple: safety claims, child-data practices, warnings, and release decisions are legal artifacts. They should be reviewed like legal artifacts before they become exhibits.

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  • Sixth Circuit Removes Appointed Counsel After AI-Generated False Quotations

    Sixth Circuit Removes Appointed Counsel After AI-Generated False Quotations

    The Sixth Circuit's decision in United States v. Farris is a narrow appellate sanctions opinion with a broad lesson: a trusted legal AI product is not a substitute for lawyer verification.

    The court did not decide the merits of the defendant's criminal appeal. Instead, it addressed appointed counsel's briefs. Counsel admitted using Westlaw CoCounsel to prepare the briefs and failing to adequately review and verify the AI-generated content before filing.

    The resulting errors were not limited to imaginary cases. The briefs cited real authorities but attributed quotations and legal propositions to them that the authorities did not contain.

    That is the part to underline. A real citation can still be a false authority.

    How The Court Spotted The Problem

    The Sixth Circuit said its initial concern began with the file name of the principal brief: "CoCounsel Skill Results." CoCounsel is Westlaw's AI platform.

    The court then found three problematic citations. The cited authorities existed, but the quoted language did not appear in them. The briefs also misrepresented the holdings of United States v. Washington and United States v. Anthony.

    After issuing a show-cause order, the court required counsel to provide copies of cited authorities and explain who wrote the briefs, whether generative AI was used, how the briefs were cite-checked, and whether AI was used in district court filings.

    Counsel responded that staff uploaded district court documents to Westlaw CoCounsel to create a first draft, that counsel supplemented the draft, and that the same process was used for the reply. Counsel admitted the false quotations were AI-generated, accepted responsibility, and said he had not previously been disciplined.

    What The Court Did

    The Sixth Circuit imposed several consequences.

    It ordered that counsel not be compensated under the Criminal Justice Act for time spent on the appeal. It directed the clerk to forward the opinion to the Chief Judge of the Sixth Circuit for possible disciplinary proceedings. It also directed service on district court and Kentucky Bar authorities.

    By separate order, the court removed counsel from further representation, ordered appointment of replacement counsel, locked the filed briefs, and reset the briefing schedule.

    The delay to the defendant's criminal appeal mattered to the court. So did the fact that the lawyer was serving through a publicly funded appointment.

    The Legal AI Product Point

    The court's opinion is careful not to treat AI as categorically forbidden. It recognizes that new technologies can bring significant promise to legal work.

    But the court also says lawyers must understand how technology can be misused or contribute to inaccuracies. That remains true even when the tool is sponsored by a trusted legal technology provider.

    For law firms and legal departments, that is the operational takeaway: vendor reputation is not a verification protocol.

    What Appellate Teams Should Change

    Appellate teams using AI should build a source-checking process that covers more than whether the case exists.

    At minimum, the process should verify:

    • every cited authority exists;
    • every direct quotation appears in the cited source;
    • every parenthetical and proposition accurately reflects the source;
    • the cited case's outcome is correctly described;
    • the procedural posture is relevant to the argument;
    • the record citations are checked against the record; and
    • the signing lawyer understands how the AI-assisted draft was created.

    The last point matters because counsel in Farris relied on staff to upload materials and generate the first draft. The court treated verification as the attorney's responsibility, not a staff function.

    Bottom Line

    Farris is not just another hallucinated-citation case. It is a false-quotation and mischaracterized-authority case involving a mainstream legal AI product.

    That makes it a more practical warning. The question before filing is not whether the AI invented a case. It is whether a lawyer read the source and confirmed that it says what the brief says it says.

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  • Michigan Court of Appeals Turns AI-Fabrication Into Published Appellate Sanctions Law

    Michigan Court of Appeals Turns AI-Fabrication Into Published Appellate Sanctions Law

    Michigan now has a published appellate opinion on AI-generated fabricated and unsupported legal authority.

    In Barber v. Morawa, the Michigan Court of Appeals affirmed the denial of a motion for a new trial or evidentiary hearing in a medical-malpractice case. The merits were not the real story. The court separately sanctioned plaintiff's counsel for repeatedly submitting fabricated and unsupported authority that counsel attributed to over-reliance on artificial intelligence.

    The opinion matters because it moves the issue from a general warning to a Michigan-specific appellate holding. Counsel's repeated submission of fabricated and unsupported authority violated MCR 7.216(C)(1) and MCR 1.109(E)(5). The case was remanded for a determination of actual damages and reasonable attorney fees incurred because of the appeal, payable personally by counsel. The court also directed its clerk to forward the opinion to the Attorney Grievance Commission for possible investigation.

    What Went Wrong

    The underlying case involved alleged juror misconduct after a civil medical-malpractice trial. The plaintiff sought a new trial or evidentiary hearing, but the allegations depended on facts outside the record and were not supported by valid affidavits.

    The court resolved that merits issue without much difficulty. The harder issue was counsel's briefing.

    The court said counsel cited fabricated authority in a motion for a protective order, then cited fabricated authority again in a motion for a new trial or evidentiary hearing. Defendant identified the problem and requested sanctions.

    The pattern continued on appeal. Counsel cited a nonexistent Michigan case and repeatedly cited real authorities for propositions they did not support. After defendant identified the defects in the appellee brief, counsel filed a reply without acknowledging the fabricated case or correcting the unsupported assertions.

    Months later, counsel filed a "Notice of Correction." That notice accepted responsibility and attributed the citation errors to over-reliance on AI research tools. But it still did not solve the problem. The court said the notice, also prepared with AI assistance, attributed quotations and legal propositions to cases that did not contain them.

    Why The Published Opinion Matters

    The court did not create an AI-specific exception. It did not create an AI safe harbor either.

    Instead, it applied existing Michigan rules. Under MCR 1.109(E)(5), a lawyer's signature certifies that the lawyer has read the document and that, after reasonable inquiry, it is well grounded in fact and warranted by existing law. The reasonableness standard is objective. Good faith is not enough.

    The court also relied on MCR 7.216(C)(1), which allows sanctions when an appeal or appellate proceeding is vexatious because a brief grossly disregards the requirements of fair presentation, violates court rules, or is grossly lacking in propriety.

    The holding is direct: submitting fabricated and unsupported authority through over-reliance on AI violates the duty of reasonable inquiry.

    That matters for Michigan practitioners because the opinion translates national AI-sanctions principles into Michigan appellate procedure.

    The Correction Filing Lesson

    The most practical part of Barber may be the failed correction filing.

    Once opposing counsel or a court identifies fabricated authority, the next filing should not be treated as ordinary cleanup. It should be treated as a controlled remediation event.

    That means:

    • stop using the same unverified AI workflow that created the problem;
    • identify every disputed citation, quotation, and proposition;
    • review original sources directly;
    • state exactly what was wrong and what is being corrected;
    • avoid substituting new authority unless it has been read and verified; and
    • have a lawyer with responsibility for the filing own the correction.

    In Barber, the correction filing became evidence that the verification problem had not been fixed.

    What Michigan Lawyers Should Do Now

    Michigan litigators should assume that AI-assisted briefing is subject to the same reasonable-inquiry requirement as any other filing.

    Before filing, counsel should verify not only that a case exists, but also that:

    • the quoted language appears in the case;
    • the case actually supports the proposition asserted;
    • the procedural posture is accurately described;
    • the cited rule or statute is current;
    • factual assertions and record references match the record; and
    • criminal cases are not being used to import inapplicable constitutional standards into civil proceedings.

    Law firms should also decide who is responsible for verification. Delegating a first draft to AI, staff, or a junior team member does not delegate the signing lawyer's duty.

    Bottom Line

    Barber v. Morawa is not a ban on AI in Michigan litigation. It is a published reminder that AI does not lower the standard for signed filings.

    For Michigan lawyers, the rule is straightforward: read the authorities, verify the quotations, and do not file a correction until the correction has itself been checked.

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  • AI Sanctions Are Moving Beyond Fake Cases

    AI Sanctions Are Moving Beyond Fake Cases

    The first wave of AI sanctions cases had an easy headline: fake cases.

    That problem has not gone away. But the next wave is broader and harder to catch. Courts are now calling out false quotations, inaccurate descriptions of real cases, unsupported legal propositions, fabricated record references, and correction filings that repeat the same verification failure they were supposed to fix.

    That shift matters because a fake case name is often easy to spot. A real case with a fake quotation is more dangerous. It can survive a quick citation check, especially if the lawyer confirms that the case exists but never reads what it actually says.

    Recent decisions from the Sixth Circuit and Michigan Court of Appeals, plus a new Oregon Court of Appeals notice, point in the same direction: legal teams need source-level verification, not just citation-level verification.

    Farris: Real Cases, False Quotations

    In United States v. Farris, the Sixth Circuit did not decide the merits of the criminal appeal. It stopped to address the conduct of appointed appellate counsel.

    The court said counsel admitted using Westlaw CoCounsel to draft the briefs and then filing them without properly verifying the legal authorities. The problem was not simply that the briefs cited nonexistent law. The briefs cited genuine authorities but attributed quotations and propositions to them that did not appear in the sources.

    One example involved the Sentencing Guidelines commentary. Other examples involved Sixth Circuit cases that were described as reversing role enhancements when they did not support the propositions asserted. The court said the briefs misrepresented the holdings of United States v. Washington and United States v. Anthony.

    The Sixth Circuit drew a line that every litigation team should build into its review process: citing a real case does not make an AI-assisted brief safe if the quotation is fabricated or the holding is misdescribed.

    The consequences were serious. The court ordered that counsel not be compensated under the Criminal Justice Act for the appeal, forwarded the opinion for possible disciplinary proceedings, served the opinion on district court and Kentucky Bar authorities, and separately removed counsel from further representation. Replacement counsel would be appointed and the briefing schedule reset.

    The court also made an important vendor-neutral point. Lawyers cannot assume that a legal AI product is reliable merely because it comes from an established legal technology provider.

    Barber: The Correction Filing Was Also Wrong

    The Michigan Court of Appeals reached a similar point in Barber v. Morawa, a published medical-malpractice appeal.

    The merits issue was straightforward: the court affirmed denial of a motion for a new trial or evidentiary hearing. The sanctions issue was not. Plaintiff's counsel had cited nonexistent cases in the trial court, relied on criminal authorities in a civil case, and then filed an appellate brief that cited another nonexistent case and used real authorities for propositions they did not support.

    After the defendant identified the defects, counsel eventually filed a "Notice of Correction." But that notice, which counsel acknowledged was also prepared with AI assistance, repeated the problem by attributing quotations and legal propositions to cases that did not contain them.

    The Michigan court held that counsel's repeated submission of fabricated and unsupported authority violated MCR 7.216(C)(1) and MCR 1.109(E)(5). It remanded for a determination of actual damages and reasonable attorney fees incurred because of the appeal, payable personally by counsel, and directed the clerk to forward the opinion to the Attorney Grievance Commission.

    That is the deeper lesson of Barber: a correction cannot be just another AI-assisted filing. Once a court or opposing party flags possible fabricated authority, the next filing should be treated as a high-risk verification event.

    Oregon Turns The Warning Into A Court Notice

    The Oregon Court of Appeals has now posted a notice specifically warning about fabricated authority produced by AI.

    The notice says the court has received an increasing number of filings containing fabricated authorities, including citations that do not exist, quotations that do not appear in the cited authority, propositions of law not reasonably related to the citation, and factual support with no basis in the record.

    The listed consequences include striking the filing, monetary sanctions payable to the court, attorney-fee awards payable to the opposing party, and dismissal of the appeal.

    The notice also gives a practical verification rule. Anyone using generative AI to prepare court-filing content must verify that all cited cases exist, that all quotations actually appear in the cited cases, and that all paraphrased propositions of law are objectively reasonable in light of what the case actually says.

    That is a useful checklist because it is not limited to fake case names. It reaches the subtler errors that are becoming common in appellate sanctions orders.

    The Pattern Is Broader Than One Tool Or One Court

    These developments fit the recent sanctions record.

    In Lnu v. Blanche, the Ninth Circuit sanctioned lawyers for briefs containing nonexistent cases, misattributed quotations, and gross misrepresentations of real authority. The court emphasized that the discipline became more serious because of the lawyers' responses after the errors came to light.

    In Withers v. City of Aberdeen, a Mississippi federal court sanctioned and removed all counsel after filings from both sides contained AI-generated fabricated authority. The order is a sharp warning for local counsel and sponsoring counsel: signing and sponsoring are not administrative formalities.

    In State v. Coleman, an Ohio appellate court sanctioned counsel after a filing contained ChatGPT-generated fabricated transcript quotations prepared by a paralegal. The AI problem there was not fake caselaw. It was a fake record.

    Together, the cases show the sanctions framework maturing. Courts are no longer asking only whether a case exists. They are asking whether the filing honestly represents law and fact.

    What Litigation Teams Should Change

    The review process should be built around propositions, not just citations.

    Before filing AI-assisted work, litigation teams should verify:

    • every cited case, statute, rule, and record reference exists;
    • every direct quotation appears in the cited source;
    • every parenthetical accurately describes the source;
    • every paraphrased proposition is fairly supported by the authority;
    • every record quotation or factual assertion matches the underlying record;
    • the lawyer signing the filing has personally satisfied the required level of review; and
    • any correction filing receives independent source review before submission.

    It is not enough to ask whether the tool hallucinated a case. A real case can be turned into a false authority if the quotation, holding, or procedural posture is wrong.

    Bottom Line

    The AI sanctions story is moving from fake cases to false authority.

    That is a harder problem and a more practical one. Lawyers have always had to verify the law and the record before filing. AI makes that duty more visible, not less binding.

    The practical rule is simple: if a filing relies on a source, someone must read the source.

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  • FTC’s Active Listening Settlement Turns AI-Washing Into a Privacy Problem

    FTC’s Active Listening Settlement Turns AI-Washing Into a Privacy Problem

    The Federal Trade Commission's proposed "Active Listening" settlements connect three risks that often travel together: AI-washing, adtech targeting claims, and weak consent theories.

    The FTC says Cox Media Group and two marketing firms falsely claimed to offer an AI-powered service that could target localized ads based on conversations captured from consumers' smart devices. According to the FTC, the service did not use voice data at all. It allegedly resold data-broker email lists at a markup and did not accurately place ads in customers' desired locations.

    That would be a straightforward deception case on its own. But the FTC went further. It also said the companies misled customers by claiming consumers had opted into the alleged listening service. And the agency added a point that should get the attention of every company making privacy-sensitive AI claims: if the service had actually worked as advertised, collecting and using consumers' voice data from inside their homes without adequate consent would itself violate Section 5 of the FTC Act.

    In other words, the problem was not only that the AI claim was false. The claimed AI capability was itself a privacy-risk representation.

    What The FTC Alleged

    The FTC announced proposed settlements with CMG Media Corporation, doing business as Cox Media Group, plus MindSift LLC and 1010 Digital Works LLC. The alleged customers were businesses buying advertising and marketing services, not the consumers whose supposed smart-device conversations were described in the pitch.

    The companies allegedly marketed an "Active Listening" advertising service that could listen in on consumer conversations overheard by smart devices, detect relevant conversations in real time, and use that information to target ads to consumers in specific geographic areas.

    The FTC says that was not true. According to the agency, the service was not based on voice data, did not listen to consumer conversations, and did not accurately place ads in the customers' desired locations. Instead, the service allegedly consisted of reselling email lists obtained from data brokers.

    The agency also says the companies told customers that consumers had opted into the service. But the FTC says the companies did not seek or obtain consumer consent. The agency specifically rejected the idea that consumers "opted in" by clicking through mandatory app terms of service.

    That consent point is the heart of the case for AI governance teams. Many AI products rely on layered data flows, third-party data, contractual assurances, or generalized platform terms. The FTC's framing says those shortcuts may not support privacy-sensitive claims, especially where the asserted capability involves intimate in-home voice data.

    The Settlement Terms

    The proposed orders require a total of $930,000 in payments: $880,000 from CMG and $25,000 each from MindSift and 1010 Digital Works. The money is intended to provide redress to CMG customers affected by the alleged practices.

    The proposed orders would also prohibit each defendant from making misrepresentations about:

    • the qualities or features of advertising or marketing services;
    • the collection and use of voice data, including whether consumers consented to collection, use, or disclosure; and
    • the geographic targeting capabilities of advertising or marketing services.

    The FTC issued the proposed administrative complaints and accepted the consent agreements by a 2-0 vote. The agreements remain subject to a 30-day public-comment period after publication in the Federal Register. If the orders become final, each violation may lead to a civil penalty of up to $53,088.

    As usual, the settlements resolve allegations. They are not admissions of liability or litigated findings.

    Why The Money Is Procedurally Important

    The $930,000 payment should not be read as the FTC simply using Section 13(b) to disgorge money from the companies.

    That route is no longer available after the Supreme Court's 2021 decision in AMG Capital Management, LLC v. FTC. In AMG, the Court held that Section 13(b) of the FTC Act authorizes the FTC to seek prospective injunctive relief, but does not authorize courts to award equitable monetary relief such as restitution or disgorgement for past conduct.

    That matters here because the FTC is resolving the Active Listening allegations through proposed administrative consent orders, not by relying on Section 13(b) alone to obtain monetary relief in federal court.

    If the parties agree, the FTC can include monetary terms in a settlement package. If they do not agree and the FTC wants monetary relief for an ordinary unfair or deceptive act or practice, the post-AMG route is more cumbersome. The FTC generally must proceed administratively under Section 5, obtain a final cease-and-desist order, and then seek consumer redress under Section 19 if the statutory standard is met, including that a reasonable person would have known under the circumstances that the conduct was dishonest or fraudulent.

    Civil penalties are different again. A first-time Section 5 deception allegation does not automatically produce civil penalties simply because the FTC believes the conduct was deceptive. Penalties typically require an independent penalty hook, such as violation of a final FTC order, violation of certain rules, or another statutory basis. That is why the FTC's release says that if these proposed orders become final, future violations of the orders may carry civil penalties of up to $53,088 per violation.

    So the practical sequence is:

    • settlement now, if the parties agree to money and conduct restrictions;
    • prospective injunctive relief under Section 13(b), but not standalone disgorgement or restitution after AMG;
    • administrative Section 5 proceedings followed by Section 19 redress for qualifying deceptive or unfair practices if there is no settlement; and
    • civil penalties later if a final order, rule, or other penalty-triggering authority is violated.

    What About AT&T?

    There are two AT&T references that can get confused.

    The Supreme Court's FCC v. AT&T Inc. decision does not do much work here. That case addressed whether corporations have "personal privacy" interests under FOIA Exemption 7(C). It is not an FTC Act remedies case and does not change the AMG limit on Section 13(b), the Section 5 administrative route, or the Section 19 redress path.

    The more relevant AT&T case for FTC authority is FTC v. AT&T Mobility LLC, the Ninth Circuit's 2018 en banc decision about the FTC Act's common-carrier exemption. The Ninth Circuit held that the exemption is activity-based, not status-based: a company is outside FTC Section 5 authority only to the extent it is engaged in common-carrier activity.

    That issue is not central to the Active Listening settlements because CMG, MindSift, and 1010 Digital Works are being treated as marketing and advertising-service defendants, not common carriers. But the case would matter if a telecom, broadband, or smart-device company raised a common-carrier defense to an FTC challenge involving AI-powered targeting, voice data, or marketing claims. In that setting, the question would be whether the challenged conduct is common-carrier activity or a non-common-carrier advertising, data, or marketing practice.

    Why This Is More Than an AI-Washing Case

    AI-washing cases usually focus on whether a product actually uses AI, whether the claimed performance is substantiated, or whether the term "AI-powered" is being used as a sales shortcut.

    This case adds a different lesson: the advertised AI function may create its own legal problem.

    If a company claims it can listen to private conversations through smart devices, the claim is not just a product-capability statement. It is a statement about data collection, surveillance, consent, security, and consumer expectations inside the home.

    The FTC's line is unusually direct. It says mandatory app terms do not equal opt-in consent for an invasive service or for the use of consumers' voice data from inside their homes.

    That matters even for companies that are not doing audio targeting. The same logic can apply to AI claims involving:

    • biometric inference;
    • location-based targeting;
    • health or mental-health signals;
    • children's or teens' behavior;
    • financial vulnerability;
    • workplace monitoring;
    • emotion detection;
    • private-message analysis; or
    • household-device data.

    When the marketed AI feature depends on sensitive data, the claim must be true, substantiated, and backed by a consent theory that fits the sensitivity of the data.

    The "Means and Instrumentalities" Piece

    The FTC also charged MindSift and 1010 Digital Works with providing CMG the "means and instrumentalities" to deceive customers through marketing materials, sales pitches, and responses to customer questions.

    That is an important vendor and partner lesson. A company does not necessarily avoid risk because another company owns the customer relationship. If it supplies misleading AI claims, sales materials, or talking points that others use with customers, it can become part of the deception theory.

    Adtech and AI vendors should treat this as a documentation and channel-control problem. Marketing claims should be reviewed not only on the vendor's website, but also in partner decks, reseller scripts, pitch emails, FAQs, demos, and objection-handling materials.

    What Companies Should Do Now

    The FTC's case points to several practical controls.

    First, inventory AI capability claims. Identify every place the company says an advertising, analytics, targeting, personalization, monitoring, or customer-intelligence product is "AI-powered," "real time," "listening," "detecting," "predicting," or "consent based."

    Second, match each claim to evidence. The proof should show not only that the technology can do what the company says, but that the deployed product actually does it in the advertised context.

    Third, separate data-source claims from model claims. Saying a system uses AI does not prove what data it uses. Saying a system uses a data source does not prove that consumers consented to that use.

    Fourth, review consent language with sensitivity in mind. Broad mandatory terms may not support claims about invasive data collection. If the advertised feature involves voice, biometrics, location, children, health, finances, or household data, the consent record needs to be much stronger.

    Fifth, audit partner materials. Vendors and agencies should not assume that downstream sales claims are someone else's problem. Resellers should not repeat vendor claims without understanding what the product actually does and what evidence supports the claim.

    Finally, avoid "it would be worse if true" marketing. A privacy-invasive capability can create legal risk even when it is imaginary. If a company would need strong consent, privacy notices, security controls, and compliance review to lawfully operate the feature, it should not casually advertise that capability as a sales hook.

    Bottom Line

    The FTC's Active Listening settlements show how quickly AI marketing can become a privacy and consumer-protection case.

    The alleged service did not listen to consumers' conversations. But the FTC still treated the claim as serious because customers were told the service used AI to target ads from smart-device conversations and that consumers had opted in.

    That is the lesson for AI products generally: do not sell a capability the product does not have, and do not claim sensitive-data consent that the company cannot prove. When the AI story depends on surveillance-like data, the marketing review is also a privacy review.

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  • Colorado’s AI Law Is Now a Rulemaking and a Court Fight

    Colorado’s AI Law Is Now a Rulemaking and a Court Fight

    Colorado's AI law is no longer just a statute on a compliance calendar. It is now moving on three tracks at once.

    The state has enacted a revised automated decision-making law. It has enacted a separate chatbot safety law. And the Colorado Attorney General has opened pre-rulemaking for both, with informal public input due July 13, 2026.

    At the same time, xAI is challenging Colorado's AI framework in federal court, and the U.S. Department of Justice has intervened against the state law. That means Colorado is becoming the first major test of what happens when state AI governance, federal constitutional objections, and practical compliance rulemaking all collide before the operative date.

    For companies, the practical point is simple: the January 1, 2027 compliance date still matters, but the rules that will define the day-to-day obligations are being shaped now.

    What Colorado Is Rulemaking

    The Colorado Attorney General's office is seeking input on rules under two laws:

    • Senate Bill 26-189, the Automated Decision-Making Technology Act.
    • House Bill 26-1263, the Chatbot Safety Act.

    SB26-189 repeals and reenacts Colorado's earlier AI framework with new requirements for automated decision-making technology used to materially influence consequential decisions. The statute defines automated decision-making technology, or ADMT, as technology that processes personal data and uses computation to generate outputs such as predictions, recommendations, classifications, rankings, scores, or other information used to make, guide, or assist a decision about an individual.

    The covered decision domains include education, employment, housing, financial or lending services, insurance, health-care services, and essential government services and public benefits.

    Starting January 1, 2027, developers of covered ADMT must provide deployers with technical documentation about intended uses, training-data categories, known limitations, and instructions for appropriate use and human review. Developers and deployers must also retain records needed to demonstrate compliance for at least three years.

    Deployers will have consumer-facing obligations too. They must provide notice at the point of interaction with covered ADMT. If a covered ADMT materially influences a consequential decision that results in an adverse outcome, the deployer must provide a plain-language post-adverse-outcome explanation within 30 days. Consumers also receive rights to request personal data, correct factually incorrect personal data used by the covered ADMT, and request meaningful human review and reconsideration.

    The Attorney General must adopt rules by January 1, 2027 to clarify post-adverse-outcome disclosures and meaningful human review. The statute also gives the Attorney General broader discretionary rulemaking authority, including the ability to clarify "materially influence."

    That phrase is likely to become one of the central compliance questions. The pre-rulemaking paper specifically asks for objective indicators that could distinguish material influence from de minimis or otherwise non-material use.

    The Chatbot Law Is Broader Than Disclosure

    HB26-1263 addresses publicly available conversational AI services that simulate human conversation through text, visual, or audio communications.

    Beginning January 1, 2027, operators must disclose that users are interacting with AI. They must use commercially reasonable or generally accepted methods to estimate user age. If an operator knows that a user or account holder is a minor, the law imposes additional duties, including restrictions on engagement incentives, safeguards against sexually explicit content and simulated emotional dependence, suicide and self-harm response protocols, privacy and account-setting tools, and annual reporting to the Attorney General.

    The law also prohibits operators from representing chatbot outputs as equivalent to services provided by specified licensed or certified professionals.

    The Chatbot Safety Act does not itself require rulemaking in the same way the ADMT Act does. But the Attorney General says rulemaking would help clarify compliance obligations, including the annual reporting requirement and any additional metrics necessary to assess safeguards and response protocols.

    That makes the rulemaking important for more than high-risk decision systems. Any company operating a public-facing conversational AI service with Colorado users should be watching the chatbot questions too.

    The Attorney General's Five Principles

    The pre-rulemaking paper says the Department of Law will use five principles:

    • Promote consumer rights.
    • Clarify ambiguities.
    • Facilitate efficient and expeditious compliance.
    • Harmonize with other state, national, and international frameworks.
    • Allow for innovation.

    That list matters because Colorado is trying to solve two problems at once. It wants enforceable consumer protections, but it also knows vague rules can make implementation harder and litigation more likely.

    The most important open questions include:

    • When does an ADMT "materially influence" a consequential decision?
    • What tools qualify as ADMT, and what tools merely summarize, organize, or present information?
    • How should the rules distinguish developers, deployers, and other participants in an AI supply chain?
    • What should post-adverse-outcome disclosures include in different sectors?
    • What does meaningful human review require in practice?
    • What metrics should chatbot operators report to the Attorney General?
    • How should Colorado's rules interoperate with other state, federal, and international AI, privacy, discrimination, and consumer-protection frameworks?

    Those are not abstract questions. They will determine whether the Colorado framework becomes a manageable compliance regime or a source of recurring uncertainty.

    The Litigation Shadow

    The rulemaking is happening while Colorado's AI law is under active federal challenge.

    xAI sued Colorado Attorney General Phil Weiser in April 2026, challenging the state's algorithmic-discrimination framework. DOJ later moved to intervene, arguing that the Colorado law violates the Equal Protection Clause by requiring AI companies to prevent unintentional disparate impact based on protected characteristics while exempting some discrimination designed to advance diversity or redress historic discrimination.

    The DOJ intervention is significant even apart from the merits. It shows federal willingness to participate directly in litigation over state AI laws, especially where the federal government views state requirements as conflicting with national AI policy, constitutional limits, or innovation priorities.

    Separately, the docket reflects a procedural stay of Colorado Attorney General enforcement pending the preliminary-injunction sequence. That does not resolve the merits. It also does not make the rulemaking irrelevant. To the contrary, the preliminary-injunction schedule appears tied to final implementing rules, which makes the rulemaking record part of the litigation landscape.

    For covered companies, the wrong lesson would be to assume the lawsuit eliminates the need to prepare. The better reading is that the rulemaking record may define the obligations, the compliance burden, and the constitutional stakes.

    What Companies Should Do Now

    Companies do not need to wait for final regulations to start the useful work.

    First, inventory systems that may materially influence decisions about education, employment, housing, lending, insurance, health care, or government benefits. The key question is not whether a system is branded as AI. It is whether computation using personal data produces an output used to make, guide, or assist a decision about an individual.

    Second, map the supply chain. Colorado separates developer and deployer obligations, but many commercial arrangements are messier than that. Vendors, customers, integrators, model providers, and internal teams may all contribute to the final decision process.

    Third, test existing documentation against Colorado's likely documentation topics: intended uses, training-data categories, known limitations, appropriate use, human review, material updates, and compliance records.

    Fourth, design adverse-outcome workflows before the final rule lands. A deployer that cannot explain the role of ADMT in a specific adverse decision will struggle to meet a 30-day disclosure requirement.

    Fifth, review chatbot operations for minor-facing risk. Age estimation, recurring AI disclosure, self-harm escalation, emotional-dependence safeguards, privacy tools, and professional-services disclaimers are design and governance issues, not just legal copy.

    Finally, consider commenting before July 13. The Attorney General is asking for concrete feedback on ambiguity, unintended consequences, compliance burdens, sector-specific examples, and interoperability. Companies that wait for formal draft rules may miss the best chance to shape the starting point.

    Bottom Line

    Colorado is becoming an early operational test for state AI governance.

    The state is trying to turn broad statutes into working rules. The federal government is challenging parts of the framework. Companies are trying to build notices, documentation, review rights, and chatbot safeguards before January 2027.

    That makes the current pre-rulemaking window more than a routine comment period. It is an early chance to shape what compliance may look like when consequential-decision systems and conversational AI services are regulated in practice.

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  • AI Court Rules Are Becoming Verification Rules

    AI Court Rules Are Becoming Verification Rules

    The next phase of legal AI regulation looks less like a blanket ban and more like a verification record.

    Florida now requires filers to stand behind the existence and accuracy of cited legal authorities. New York now allows AI-assisted court papers without a statewide disclosure requirement, but requires independent verification. The Ninth Circuit just sanctioned lawyers for AI hallucinations and lack of candor. A Mississippi federal judge just removed all four lawyers from a case after both sides filed AI-tainted briefs.

    Different courts. Same message: the tool is not the issue. The filing is.

    The New Rule: Verify First

    Florida's amended Rule 2.515(d)(2), effective June 15, 2026, says that by filing a document, the signer represents that "the legal authorities identified exist and are accurately cited." If that representation is false, sanctions can include reprimand, contempt, striking the filing, dismissal, costs, attorneys' fees, or other relief.

    That is deliberately broader than AI. A lawyer cannot escape the rule by saying a fake case came from a chatbot, a legal research product, an associate, local counsel, a vendor, or a recycled brief.

    New York's Part 161, effective June 1, takes a different route but lands in the same place. It permits AI use in court submissions and does not impose a statewide disclosure mandate. But users must understand the technology's limits and independently ensure that filings do not contain fabricated or fictitious cases, statutes, or other material.

    So the emerging split is not "AI allowed" versus "AI banned." It is disclosure versus no disclosure, with verification underneath both.

    The Sanctions Cases Are Getting Less Patient

    In Lnu v. Blanche, the Ninth Circuit sanctioned two lawyers after filings contained nonexistent cases, misattributed quotations, and serious misreadings of real cases. The court stressed that it was not punishing AI use by itself. It was punishing false filings and the lawyers' later lack of candor.

    That distinction matters. A bad citation is a serious problem. A bad explanation can become the larger one.

    The Mississippi sanctions order in Withers v. City of Aberdeen is even more vivid. The case started as a fee dispute brought by Louisiana lawyer Tom Withers III against Aberdeen, Mississippi. After transfer to the Northern District of Mississippi, the court found hallucinated authorities in filings from both sides.

    The plaintiff side included Louisiana pro hac vice counsel Kathleen M. Wilson and Mississippi local counsel Shauncey Hunter Ridgeway. The defense side included Texas pro hac vice counsel Kathryn Y. Williams and Mississippi local counsel Mark C. McClinton. The court removed all four lawyers from the case, revoked both pro hac vice admissions, barred the two out-of-state lawyers from appearing in the district for two years, imposed monetary sanctions, and referred the order to disciplinary authorities.

    The local-counsel lesson is hard to miss: signing is not clerical. Sponsoring is not ceremonial. If your name is on the filing, the verification problem is yours too.

    California May Be Next

    California is also moving from guidance toward rules. The State Bar has opened public comment on proposed amendments to the Rules of Professional Conduct related to AI, after the California Supreme Court asked it to consider incorporating generative-AI guidance and addressing agentic AI tools.

    That is not a court-filing rule like Florida's or New York's. But it shows the same maturation curve. Soft guidance is starting to harden.

    What To Do Before The Next Filing

    Litigation teams should assume courts will ask a simple question: who checked this?

    • Check the courtwide rule, local rule, judge's standing order, and part rules before filing.
    • Identify whether AI touched research, drafting, editing, factual summaries, record citations, or proposed orders.
    • Verify every cited authority in an authoritative source.
    • Read the authority, not just the citation.
    • Confirm quotations, parentheticals, holdings, procedural posture, and subsequent history.
    • Trace facts and record cites back to the record.
    • Make signing, local, and sponsoring counsel confirm the verification process.
    • If an error is found, correct it quickly and candidly.

    The hardest AI errors are not always fake case names. Sometimes they are real cases used for propositions they do not support. A citation check is not enough; the proposition has to survive too.

    Bottom Line

    Courts are not focused on whether AI helped with the first draft. They want to know whether a lawyer verified the final filing.

    The practical rule is now simple: use the tool if the forum, client, confidentiality obligations, and governing orders allow it. But before anything is filed, someone qualified must verify the authorities, quotations, facts, and record references. And someone with a signature block must be ready to say so.

    For a broader inventory of court rules, sanctions orders, privilege decisions, protective-order restrictions, and tribunal guidance, see Clearon's AI Litigation Practice Tracker.

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  • AI-Assisted Legal Filing Verification Checklist

    AI-Assisted Legal Filing Verification Checklist

    Generative AI can accelerate legal work, but it does not change who is responsible for a court filing. Use this checklist before filing any paper that may contain AI-assisted research, drafting, revision, or analysis.

    It is a practical starting point, not a substitute for the requirements applicable to a particular matter.

    Quick Rule

    Do not file an AI-assisted document until a qualified human has independently verified every legal authority, quotation, factual assertion, record citation, and representation about the proceeding against an authoritative source.

    If any item cannot be checked, stop and resolve it before filing.

    1. Confirm Permitted Use

    • [ ] Identify the AI tools used and the portions of the filing they may have affected.
    • [ ] Confirm the use complies with client instructions, protective orders, confidentiality duties, firm policy, and applicable law.
    • [ ] Check local rules, standing orders, judge-specific practices, and filing instructions for AI restrictions or disclosure requirements.
    • [ ] Confirm no protected information was entered into an unapproved system.

    2. Verify Authorities and Quotations

    • [ ] Open and read every cited authority in an authoritative source.
    • [ ] Confirm each citation identifies the correct authority and current version.
    • [ ] Confirm that each authority supports the precise proposition for which it is cited.
    • [ ] Check precedential status, subsequent history, negative treatment, and applicable citation limits.
    • [ ] Compare every quotation and pinpoint citation against the original source and surrounding context.
    • [ ] Confirm parentheticals, paraphrases, and descriptions accurately characterize the source.

    3. Verify Facts and the Record

    • [ ] Trace every material factual assertion to the record or another permissible source.
    • [ ] Open and verify every record citation, exhibit reference, transcript page, docket entry, and date.
    • [ ] Check names, entities, amounts, calculations, timelines, tables, and summaries.
    • [ ] Distinguish allegations, evidence, findings, holdings, inferences, and argument.

    4. Review and Approve the Final Filing

    • [ ] Have a qualified human independently review the final version.
    • [ ] Check the requested relief, legal standard, jurisdiction, deadlines, service representations, and procedural history.
    • [ ] Check for placeholders, invented citations, inconsistent names, unsupported cross-references, and omitted controlling authority.
    • [ ] Verify appendices, exhibits, certificates, signature blocks, and proposed orders.
    • [ ] Complete any required AI-use disclosures or certifications.
    • [ ] Obtain informed approval from the signing lawyer and responsible supervising, local, or sponsoring counsel.

    Ready to File

    • [ ] Every authority, quotation, fact, and record citation has been independently verified.
    • [ ] The final version has not changed since verification.
    • [ ] Applicable AI rules, client restrictions, and disclosure duties have been satisfied.
    • [ ] The signing lawyer can accurately explain how the filing was prepared and checked.
    • [ ] The team preserved a concise record of who reviewed what and when.

    If an Error Is Discovered After Filing

    • [ ] Stop using the affected material and notify responsible lawyers immediately.
    • [ ] Independently determine the error's full scope and preserve relevant records.
    • [ ] Assess duties to the client, court, opposing counsel, insurer, firm, and disciplinary authorities.
    • [ ] Correct material errors promptly and candidly using the required procedure.
    • [ ] Review other filings or matters that may have used the same workflow.

    Candor after discovery can materially affect the court's response. Recent sanctions orders show that concealment, blame shifting, and repeated inaccuracies can be more damaging than the original mistake.

    Bottom Line

    AI assistance does not reduce the duty of inquiry attached to a court filing. Independent verification, meaningful supervision, signer approval, and prompt candor are still the core requirements.

    For examples of how courts are applying those principles, see Oregon Supreme Court's First AI Hallucination Sanctions Show What Courts Punish Most and Clearon's AI Litigation Practice Tracker.

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  • Oregon Supreme Court’s First AI Hallucination Sanctions Show What Courts Punish Most

    Oregon Supreme Court’s First AI Hallucination Sanctions Show What Courts Punish Most

    The Oregon Supreme Court has issued its first sanctions orders involving court filings attributed to generative artificial intelligence. The significance is not a new AI-specific rule. It is that the court applied familiar duties of accuracy, reasonable inquiry, supervision, and candor to filings containing AI-generated errors.

    They also show that the response after an error is discovered can matter almost as much as the original filing.

    In one case, a self-represented litigant accepted responsibility, fully responded to the court, and received a $500 sanction with permission to submit a corrected filing. In the other, self-represented litigants acknowledged fabricated authorities but submitted more nonexistent cases less than 12 hours after the court's show-cause order. The court struck their filings and dismissed the proceeding.

    The lesson extends well beyond Oregon and beyond self-represented litigants. Courts across the country have imposed monetary sanctions, fee awards, dismissal, disqualification, practice suspensions, bar referrals, mandatory disclosures, and other remedies for filings containing fabricated or materially inaccurate authorities.

    Key Takeaways

    • *The Oregon Supreme Court sanctioned self-represented litigants, not lawyers.* The orders make clear that the obligation not to inject false authority into a proceeding applies to everyone who files.
    • *Courts are punishing the filing, not the mere use of AI.* The recurring issue is whether the signer verified that authorities exist, quotations are accurate, and cases support the propositions asserted.
    • *Candor changes the sanction analysis.* Prompt disclosure, correction, and acceptance of responsibility can mitigate sanctions. Repetition, concealment, blame shifting, and misleading explanations can sharply increase them.
    • *The signature and supervision duties are nondelegable.* Lawyers cannot avoid responsibility by pointing to an associate, contract lawyer, local counsel, vendor, internal AI tool, or firm policy.
    • *Financial penalties are only part of the risk.* Dismissal, disqualification, suspension, bar referral, and mandatory notice to clients and other courts can be more consequential than a fine.

    Oregon's Two New Orders

    The Oregon Supreme Court issued both orders on June 4, 2026, and announced them publicly the next day.

    Aldridge v. Tussing: Repeating the Error Led to Dismissal

    In Aldridge v. Tussing, the relators filed a petition for a writ of mandamus supported by nonexistent cases and fabricated quotations. The court ordered them to verify every citation under penalty of perjury, explain the errors, and show cause why sanctions should not be imposed.

    The relators acknowledged that fabricated authorities had been included and attributed the errors to a service called LegalAI. But less than 12 hours after receiving the show-cause order, they submitted another declaration containing at least four nonexistent cases.

    The court struck the petition and the show-cause response and dismissed the proceeding. Its explanation was direct: injecting false precedent undermines the integrity of a proceeding, and repeating the conduct in response to a show-cause order warrants a meaningful sanction.

    Witkin v. McGreevy: Acceptance of Responsibility Mitigated the Result

    In Witkin v. McGreevy, a self-represented respondent filed a response containing fictitious authorities and inaccurate legal arguments generated with AI. After receiving a show-cause order, the respondent addressed each fabricated authority, explained the AI use, and accepted responsibility.

    The court still struck the filing and imposed a stipulated $500 sanction. But it allowed the respondent to file a corrected response, provided that any revised filing certified that every cited, quoted, or paraphrased source of law had been verified to exist.

    The contrast is the point. Both filings contained false authority. The litigant who responded candidly and corrected course received a limited financial sanction and another opportunity to file. The litigants who repeated the misconduct after a direct warning lost the proceeding.

    Oregon Already Had a Six-Figure Warning for Lawyers

    The state-court orders arrived only months after a separate federal case from Oregon demonstrated how large the financial exposure can become.

    In Couvrette v. Wisnovsky, the U.S. District Court for the District of Oregon addressed summary-judgment briefing containing nonexistent cases and fabricated quotations. The court struck the briefing, dismissed the plaintiffs' claims with prejudice, imposed monetary sanctions, and awarded the opposing parties $94,704.38 in fees and costs directly resulting from the briefing.

    The March 2026 fee order allocated the award between lead counsel and local counsel. The local lawyer was ordered to pay 15% after the court found that he had failed to meaningfully participate despite serving as required local counsel for a lawyer admitted pro hac vice. The lead lawyer was ordered to pay the remaining 85%. The court also required local counsel to attach the sanctions order to future motions in which he sought to sponsor pro hac vice counsel in the district.

    Together with the court's earlier monetary sanctions, the financial consequences exceeded $110,000. More important, the case shows that local counsel and supervising lawyers cannot treat their role as providing a name, bar number, or signature while leaving the substance unchecked.

    The Sanctions Menu Is Expanding

    The early headline case was Mata v. Avianca. In 2023, the Southern District of New York imposed a $5,000 penalty after lawyers submitted fabricated cases and fake opinions generated by ChatGPT and continued to defend the material after its authenticity was questioned. The court also required notice to the client and to judges falsely identified as authors of the fabricated opinions.

    Since then, courts have used a much broader range of remedies:

    • *Sanctions for every signer:* In Wadsworth v. Walmart, the District of Wyoming imposed $5,000 in combined sanctions and revoked one lawyer's pro hac vice admission after a filing cited eight nonexistent cases. The court treated the duty to ensure a filing is supported by existing law as nondelegable.
    • *A $10,000 appellate sanction:* In Noland v. Land of the Free, L.P., the California Court of Appeal imposed $10,000 in sanctions after an appellate brief contained fabricated quotations and other inaccurate authority. The published opinion warned that lawyers must personally read and verify the authorities they cite.
    • *Disqualification and bar referrals instead of a fine:* In Johnson v. Dunn, the Northern District of Alabama publicly reprimanded and disqualified three lawyers, required broad distribution of the sanctions order, and referred the matter to licensing authorities. The court concluded that a fine and public embarrassment were insufficient deterrents.
    • *Suspension from appellate practice:* In Lnu v. Blanche, the Ninth Circuit imposed $2,500 sanctions on each of two lawyers, suspended both from practice before the circuit for six months, required notice to clients, opposing counsel, judges, and the lawyers' firm, and imposed a two-year AI-use disclosure and verification requirement. The court emphasized that the more serious discipline resulted from repeated failures of candor after the errors came to light.
    • *Both sides sanctioned:* In Withers v. City of Aberdeen, the Northern District of Mississippi sanctioned and removed all four lawyers after filings from both sides contained hallucinated authorities. The two out-of-state lawyers were also barred from appearing in the district for two years.

    These cases do not establish a uniform sanctions schedule. They show that courts are calibrating remedies to the conduct, the harm, the lawyer's role, prior warnings, remediation, and candor.

    What Courts Appear to Punish Most

    The orders point to several aggravating factors.

    Filing Without Reading the Authorities

    Checking whether a case name exists is not enough. Courts expect lawyers to read the authority and confirm that quotations are accurate, procedural posture is correctly described, and the case actually supports the proposition asserted.

    The Ninth Circuit drew a useful distinction between fabricated authorities and subtler inaccuracies. A fake case may be easy to detect. A real case mischaracterized by an AI tool may be more dangerous because it can survive a superficial citation check.

    Treating Signatures as Administrative

    Courts repeatedly reject the idea that a lawyer can lend a signature without assuming responsibility for the filing. That principle reaches supervising lawyers, local counsel, partners, and lawyers whose names appear in signature blocks even when they did not personally use AI.

    Repeating or Concealing the Problem

    An inaccurate filing creates a serious problem. Misleading the court about how it happened, replacing fake citations without disclosing the original problem, or submitting additional fabrications after a warning creates a larger one.

    The Oregon Supreme Court's two orders make the distinction unusually clear. So does the Ninth Circuit's order in Lnu, where the court said lesser sanctions might have been warranted if the lawyers had promptly disclosed the AI use and accepted responsibility.

    Relying on a Policy Without Enforcing It

    Having a written AI policy is not a defense when actual workflows allow unverified material to reach the court. Policies must identify who checks citations, quotations, propositions, facts, and record references before filing. They also need a clear escalation process when an error is discovered.

    What Litigation Teams Should Do Now

    For a practical pre-filing workflow, use Clearon's AI-Assisted Legal Filing Verification Checklist.

    • Require verification of every citation, quotation, factual assertion, and record reference against the original source before filing.
    • Make the signing lawyer responsible for confirming that verification occurred.
    • Apply the same controls to work prepared by associates, contract lawyers, local counsel, clients, vendors, and AI tools.
    • Preserve enough information about the drafting and verification process to explain it accurately if questioned.
    • When an error is discovered, notify the court and opposing counsel promptly, identify the nature and source of the error, and propose a concrete correction.
    • Do not describe a fabricated authority as a typographical error or silently swap in a different citation.
    • Train lawyers to detect mischaracterizations of real cases, not only nonexistent citations.
    • Treat show-cause orders as urgent risk events requiring independent review and senior oversight.

    Bottom Line

    The Oregon Supreme Court's first AI-related sanctions orders do not ban AI. They show how courts protect the integrity of filings when AI-assisted work reaches the docket without real verification.

    The technology may explain how a false citation appeared, but it does not change who is responsible for filing it. Courts are increasingly focused on three questions: Was the filing verified? Who accepted responsibility for it? What happened after the error was discovered?

    The emerging sanctions record suggests that the last question can determine whether the result is a correctable mistake, a monetary penalty, a lost case, or a career-level disciplinary problem.

    For the broader court-rule landscape, see Federal Court AI Orders Are Splitting Into Clear Patterns and Clearon's AI Litigation Practice Tracker.

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  • Disney v. Midjourney and the Broader Copyright Question for AI Users

    Disney v. Midjourney and the Broader Copyright Question for AI Users

    Disney v. Midjourney makes the AI copyright fight more concrete.

    The case is about training data, but it is also about outputs that allegedly look too much like famous protected characters and franchise imagery.

    What the case is actually about

    Disney, Universal, and affiliated rights holders sued Midjourney in federal court in Los Angeles on June 11, 2025.

    The case is:

    • Case: Disney Enterprises Inc. v. Midjourney Inc.
    • Court: C.D. Cal.
    • Docket: 2:25-cv-05275
    • Status: pending

    The studios' position is straightforward. They say Midjourney was built using copyrighted works and that the service can generate outputs that are too close to protected characters and expressive elements. The complaint reportedly includes example prompts and output images involving well-known properties, which is part of why the case landed so clearly in public discussion.

    Two examples from the complaint show why the output issue is getting so much attention:

    Cropped complaint comparison image showing an alleged Midjourney Homer Simpson output beside Disney reference images.
    Cropped complaint comparison image showing an alleged Midjourney Homer Simpson output beside Disney reference images. Source: Complaint, Disney Enterprises Inc. v. Midjourney Inc., No. 2:25-cv-05275 (C.D. Cal.), page 32.
    Cropped complaint comparison image showing an alleged Midjourney Minions output beside Universal reference images.
    Cropped complaint comparison image showing an alleged Midjourney Minions output beside Universal reference images. Source: Complaint, Disney Enterprises Inc. v. Midjourney Inc., No. 2:25-cv-05275 (C.D. Cal.), page 51.

    Midjourney’s likely response is also familiar. Training is not the same as republishing a work. Not every prompted image is substantially similar enough to infringe. And not every reference to a known character, franchise, or visual style cleanly collapses into liability for the platform.

    That is why this case matters. Both sides are arguing about where the legal line sits when a model produces commercially useful images that unmistakably evoke existing protected expression.

    Can businesses use Midjourney images commercially?

    Midjourney’s published guidance says customers generally own the images and videos they create and may use them commercially, subject to its terms and plan requirements. For businesses with more than $1 million in annual gross revenue, Midjourney says a Pro or Mega Plan is required for commercial use.

    That contractual permission is only one part of the analysis. It does not guarantee that a particular output is noninfringing, that the user owns every element in the output, or that the output qualifies for copyright protection. Midjourney’s terms provide the service and assets on an “as is” basis, disclaim a warranty of noninfringement, and place responsibility for using or redistributing assets on the customer.

    For business use, the practical controls should include:

    • confirming that the account and subscription plan permit the intended commercial use;
    • screening prompts and outputs for recognizable characters, logos, protected expression, and other third-party rights;
    • retaining records of prompts, source materials, edits, and human review;
    • requiring additional clearance before using AI-generated images in prominent campaigns, products, or customer deliverables; and
    • reviewing vendor terms regularly because platform rules and protections can change.

    Commercial-use permission from the platform answers whether Midjourney permits the use. It does not answer whether a rights holder may challenge it.

    Related Clearon AI analysis: OpenAI copyright MDL and data governance and AI-generated code and copyleft risk.

    The bigger issue

    For companies, the issue is not just whether Midjourney wins or loses.

    It is whether the business has decided what level of copyright and brand-adjacent risk it is actually willing to accept when employees use generative AI in public-facing work.

    Many legal teams are comfortable saying obvious character replication is out of bounds. The harder question is the gray zone. Is the company willing to rely on a fair use argument if a marketing image is styled to evoke Disney, South Park, or another highly recognizable visual world? Is it comfortable arguing that a prompt drew on a style, not a protected work? Is it willing to defend that position after publication, in a customer campaign, or in court?

    That is the governance issue this case sharpens. Companies need a view on where they are comfortable being aggressive, where they want to be conservative, and which arguments they are actually prepared to stand behind if challenged.

    They also need to account for contract risk, not just copyright doctrine. Most, if not all, major AI image providers put the user on the hook for at least some infringement risk tied to prompts, inputs, or outputs. Even when a vendor offers limited indemnity, it is often narrow and conditional. So a company deciding to operate in the gray zone may also be deciding that it, not the service provider, will carry much of the downstream claim risk.

    The Clearon AI takeaway

    Disney v. Midjourney turns AI copyright risk into a risk-allocation question for users, not just model developers.

    The practical lesson is less “never touch this” and more “decide, in advance, which copyright arguments your company is truly willing to own.”

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